Nucor in Talks With Cliffs Over Stake In Canadian Iron Ore Mine: Source

John W. Miller was first to report that Nucor Corp. is in talks to invest in Cliffs Natural Resources Inc.’s Bloom Lake iron ore mine in Canada. Two Japanese steel companies would also be part of the venture, which would allow Cliffs to more than double production at the mine in Quebec to 13.5 million tons a year, according to sources. The partnership would allow Cliffs to make the mine profitable.

The story as it appeared on Dow Jones:
Oct. 31, 2014 – 12:54 PM EDT: Nucor in Talks With Cliffs Over Stake In Canadian Iron Ore Mine: Source

12:54 PM EDT: Nucor in Talks With Cliffs Over Stake In Canadian Iron Ore Mine

By John W. Miller

Nucor Corp. is in talks to invest in Cliffs Natural Resources Inc.’s Bloom Lake iron ore mine in Canada, according to a person familiar with the matter.

Two Japanese steel companies would also be part of the venture, which would allow Cliffs to more than double production at the mine in Quebec to 13.5 million tons a year. The total capital expenditure required would be $1.2 billion. The three partners, along with Wuhan Iron and Steel Co., an existing partner, would buy the iron ore produced at the mine.

The partnership would allow Cliffs to make the mine profitable, say executives. Earlier this month, it took a $6 billion write-down, mostly related to Bloom Lake. Consequently, it posted a loss of $5.9 billion, or $38.49 per share, in the third quarter, compared with a profit of $104 million, or 66 cents per share, a year ago. Its share price has declined by more than 60% in the last year.

Cliffs, based in Cleveland, is seeking to retool as it faces declining prices for its core product, iron ore used to make steel, which have fallen 40% in the past year. It is also in a transition after a board coup this year orchestrated by activist hedge fund Casablanca Capital LP, resulting in Lourenco Goncalves taking over as chief executive in August.

A veteran metals executive from Brazil, Mr. Goncalves wants to refocus Cliffs’ business around five iron ore mines in Michigan and Minnesota, which sell to Midwestern steel mills that service the U.S. auto industry. It has hired bankers to sell iron ore assets in Australia and is also looking to sell coal mines in West Virginia and Alabama. He said he is looking for partners to invest in Bloom Lake, which he has called the company’s “problem child.”

Cliffs acquired the controlling stake in the mine when it expanded in Canada by buying Consolidated Thompson Iron Mines Ltd. in 2011 for $4.9 billion, just around when iron ore prices reached their peak at more than $185 per ton. The plan was to ship the ore to China. Now, because of oversupply and slowing growth in Chinese demand, prices are down to around $80.

Costs at Bloom Lake, including operating expenses, were $106.3 a ton in the third quarter. That division lost $165 million in the first nine months of 2014, after losing $52.3 million over the same period in 2013.

Mr. Goncalves told analysts Tuesday that if developed with partners, Bloom Lake would “produce an estimate 13.5 million tons of high quality iron ore” at a cost “in the low $50 per ton range.” The iron ore, he added, “is in a different class, well above the typical iron ore shipped by the Australian majors to China.”

Nucor, based in Charlotte, has increased the amount of iron it uses in its furnaces, which typically rely on scrap. As iron ore prices decline, the pellets are becoming an attractive substitute for scrap. Nucor recently launched a new plant in Louisiana to manufacture iron pellets.

On Tuesday, Mr. Goncalves told analysts that Bloom Lake could produce the ”ore of choice” for the same type of pellets Nucor needs.

Nucor CEO John Ferriola told analysts last week that he was “certainly” interested in “potential acquisitions and opportunities” to invest in more iron ore production. “Is the environment today a whole lot better than it was four years ago? Absolutely,” he said.

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